European Trade Commissioner Cecilia Malmstrom said today she was confident that the US would not follow through on its threat to slap tariffs on European cars.
But the Commissioner added that the EU was ready to respond if it the US did impose tariffs.
US President Donald Trump has threatened to impose tariffs on cars from around the world, as he did with aluminium and steel last March.
But European Commission President Jean-Claude Juncker negotiated a "ceasefire agreement" last July.
Cecilia Malmstrom, speaking at a panel event at the World Economic Forum in Davos, said the Trump-Juncker agreement, which delayed the tariffs while trade talks took place, had tried to find common ground.
"We're advancing, we have made some very important progress there and there's a process that is positive, I think, and it said also that we would not impose tariffs on each other,"Malmstrom said.
"If that is violated by the US, we will have to respond. I don't want to do that. But we will have to do that. But we are confident that we will not be taxed on this."
The European and US car industries have both made perfectly clear they do not want to see a 25% tariff imposed, and such a trade barrier would be bad for both economies, Malmstrom said.
The legal form of the "Section 232" tariffs invoked by Trump would imply that the EU was a national security threat to the US, she said.
"We can never accept that. We are friends and allies and we are not a national security threat. So we hope that this will not happen," she told the Davos gathering.